GAKKYUSHA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.56B
• Operating Income: ¥1.45B
• Net Income: ¥911M
• EPS: ¥83.86

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid core operations with margin expansion, but bottom line declined due to below-the-line items and a higher effective tax drag. Revenue decreased 1.6% YoY to 65.64, reflecting a soft top line in the first half. Despite this, operating income rose 6.1% YoY to 14.48, evidencing disciplined cost control and operating leverage. Gross profit reached 25.17 with a gross margin of 38.3%. SG&A was 10.68, implying an SG&A-to-sales ratio of 16.3%, which helped lift operating margin. Operating margin expanded to 22.1% from roughly 20.5% a year ago, a c.160 bps improvement. Ordinary income increased 6.1% to 14.87, supported by modest non-operating income (0.48) and minimal non-operating expenses (0.09). Profit before tax fell to 13.98, implying net extraordinary losses of about 0.9 that offset operating strength. Net income declined 12.7% YoY to 9.11, driven by those extraordinary items and a high effective tax rate of 34.8%. Interest burden is negligible with interest expense of 0.09 and a very strong interest coverage ratio of 167x. Balance sheet quality is strong: equity is 77.56 (c.62% equity ratio by calculation), cash is 31.38, and long-term loans are modest at 10.87. Liquidity is adequate with a current ratio of 139.7%, and cash alone covers current liabilities. ROE stands at 11.8% on a DuPont basis (13.9% net margin × 0.524 asset turnover × 1.62x leverage), solid for the sector. However, the calculated payout ratio is 108.4%, suggesting dividends likely exceed earnings in the period; sustainability requires confirmation of cash generation. With operating momentum intact but net profit pressured by one-off items/taxes, the near-term focus is on normalization of below-the-line items and cash conversion in 2H. Forward-looking, if extraordinary losses abate and the tax rate normalizes, reported profit should converge upward toward the improving operating trend.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 13.9% × Asset Turnover 0.524 × Financial Leverage 1.62x = ROE 11.8%. The largest driver this quarter was margin dynamics: operating margin expanded to 22.1% (from ~20.5% YoY), reflecting tighter SG&A control despite lower sales. Asset turnover is modest at 0.524, consistent with an asset-heavy education footprint and seasonality; no material change is evident within the half. Financial leverage at 1.62x remains conservative and stable, contributing little to ROE variability. Business drivers: cost optimization (lower SG&A ratio) and likely favorable mix/pricing lifted operating profit, but extraordinary losses and a 34.8% tax rate constrained net margin relative to operating strength. Sustainability: operating margin gains appear repeatable if cost discipline persists; by contrast, extraordinary losses look non-recurring, and tax rate could normalize, which would be supportive for ROE. Watchpoints: SG&A growth appears below revenue (SG&A ratio fell to 16.3%), indicating positive operating leverage; maintain vigilance that deferred hiring or marketing cuts do not impair future enrollment. The non-operating line (net +0.39) is small versus operating income and unlikely to be a major ROE swing factor unless it turns loss-making.

Growth Assessment

Top-line contracted 1.6% YoY to 65.64, indicating modest demand softness or timing/seasonality effects in the academic cycle. Despite the decline, operating income grew 6.1% YoY to 14.48, signaling improved productivity and cost containment. Ordinary income also rose 6.1% to 14.87, but bottom-line net income fell 12.7% to 9.11 due to extraordinary losses and a high effective tax rate. Revenue sustainability hinges on enrollment, retention, and pricing in core educational services; with limited disclosures on student numbers or ARPU, we cannot validate demand breadth. Profit quality is mixed: operating trends are positive, but below-the-line volatility reduced earnings visibility. Given strong cash holdings and modest debt, the company has capacity to continue selective investment in facilities or curriculum to support medium-term growth. Outlook: if enrollment stabilizes and cost discipline remains, full-year operating profit trajectory looks favorable; bottom-line recovery requires reduced extraordinary items and a normalized tax rate in 2H.

Financial Health

Liquidity: Current ratio 139.7% and quick ratio 139.7% (no inventories reported) indicate adequate short-term coverage; explicit warning thresholds (CR < 1.0) are not breached. Cash and deposits of 31.38 exceed current liabilities of 29.52, reducing near-term refinancing risk. Solvency: Debt-to-equity ratio is 0.62x (total liabilities/equity), and long-term loans stand at 10.87; leverage is conservative. Equity ratio (calculated) is approximately 61.9% (77.56/125.31), indicating a strong capital base. Maturity mismatch risk appears low, with current assets (41.25) exceeding current liabilities (29.52) by 11.73. Off-balance sheet obligations were not disclosed; no assessment possible. No explicit red flags such as D/E > 2.0 or current ratio < 1.0.

Cash Flow Quality

Operating cash flow was unreported, so OCF/Net Income and FCF cannot be calculated. As a result, we cannot validate earnings conversion or working capital behavior for the half. The company’s high cash balance suggests adequate liquidity; however, without OCF we cannot assess whether cash increased due to operations or financing/asset sales. Dividend coverage by FCF is not assessable. No discernible signs of working capital manipulation can be identified from the limited balance sheet detail (receivables are small at 1.35, inventories unreported).

Dividend Sustainability

The calculated payout ratio is 108.4%, implying dividends exceed earnings over the period; this raises a sustainability question absent corroborating cash inflows. However, given seasonality in education businesses and the interim nature of Q2, the payout ratio may not reflect full-year coverage. FCF coverage cannot be assessed due to unreported OCF and capex. Balance sheet capacity (cash 31.38, low net debt) provides short-term flexibility to maintain dividends even if near-term earnings are soft. Dividend policy outlook will hinge on full-year profit, extraordinary item normalization, and cash generation in 2H; a payout ratio sustainably below 60% would be a healthier target over the cycle.

Risk Assessment

Business Risks:

• Enrollment and retention risk amid demographic decline in Japan affecting cram school demand.
• Competitive intensity in after-school education driving pricing pressure and marketing spend.
• Seasonality and academic calendar timing can shift revenue and profit recognition between quarters.
• Execution risk in cost control potentially impacting service quality and future growth.
• Regulatory or curriculum changes altering demand for supplemental education services.

Financial Risks:

• Net income sensitivity to extraordinary items, as implied by the gap between ordinary income and PBT.
• High effective tax rate (34.8%) reducing bottom-line conversion and potentially volatile YoY.
• Liquidity just below the >1.5x benchmark (current ratio 1.40x), though still adequate and supported by cash.
• Limited visibility on cash generation due to unreported OCF and capex, obscuring FCF sustainability.
• Interest rate risk on existing and potential borrowings, albeit modest given low debt levels.

Key Concerns:

• NI declined 12.7% YoY despite OI growth, driven by below-the-line factors.
• Payout ratio at 108.4% suggests dividends exceed earnings for the period.
• Extraordinary losses (~0.9) dragged PBT below ordinary income; recurrence would pressure EPS.
• Data limitations on OCF, capex, and dividend cash outflow restrict assessment of cash coverage.

Investment Implications

Key Takeaways:

• Core operations strengthened as operating margin expanded ~160 bps despite a 1.6% revenue decline.
• Below-the-line items and a 34.8% effective tax rate drove a 12.7% YoY net income drop.
• ROE of 11.8% is supported mainly by margins, with conservative leverage (1.62x) and modest asset turnover (0.524).
• Balance sheet quality is high: equity ratio ~62% and cash covers current liabilities.
• Dividend sustainability appears tight on a period basis (108% payout) absent OCF confirmation.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio in 2H for persistence of cost discipline.
• Extraordinary gains/losses and effective tax rate normalization drivers.
• Enrollment trends and average revenue per student to gauge top-line recovery.
• OCF/Net Income once disclosed, and capex to assess FCF and dividend coverage.
• Cash balance versus current liabilities and any changes in long-term loans.

Relative Positioning: Within the education services peer set, the company exhibits stronger-than-average operating margins and conservative leverage, but shows weaker net profit momentum this quarter due to extraordinary and tax headwinds; visibility on cash flow is lower than ideal given unreported OCF.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis